The end of shrinking wages? Workers finally see pay rises catching up with inflation

There are signs that workers may finally be about see annual pay rises that outstrip inflation, according to latest analysis of pay agreements.

A study of 65 agreements by pay analysts Incomes Data Services (IDS) showed that median annual pay awards increased to 3 per cent in recent month, up from 2.5 per cent seen during most of 2011.

The rise coincides with a fall in the official consumer price index (CPI) measure of inflation. CPI fell to 3.6 per cent in January from 4.2 per cent in December.

Beginning to thaw: Pay freezes are lifting just as living cost rises ease.

While living costs are still rising faster than wages, the gap is narrowing. The luckiest third of workers received increases of 4 per cent or more - but around one in 20 involved a wage freeze, IDS said.

Pay rises for workers in the services sector lagged behind those in manufacturing firms, but the gap is closing, the study found.

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Ken Mulkearn, of IDS, said: 'It looks like 3 per cent might be a floor for a significant portion of pay awards in manufacturing, and services could be following suit.

'Many manufacturing awards are the result of collective bargaining with unions, especially in January, and this is doubtless a key factor.

'It will be interesting to see whether the same trends on settlements continue into April, which is the key period for pay reviews in services.

'The fact that inflation is coming down might help ease the pressure on negotiators, though the pace and extent of the fall is impossible to predict, and in some instances there may be pressure for catch-up awards after several years of below-inflation increases.'

TUC general secretary Brendan Barber said: 'This latest rise in pay settlements is great news for workers and positive for the economy too.

'Having suffered several years of real terms pay cuts and recent tax rises, employees need a long period of decent pay growth to make up for lost ground.

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The end of shrinking income? Workers finally see pay rises catching up with inflation